A Tale of "Benevolent" Governments: Private Credit Markets, Public
A Tale of "Benevolent" Governments: Private Credit Markets, Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance Italy MARISTELLABoTTIcIm This article illustrates the impact of Jewish lenders on private credit markets and public finance in medieval and Renaissance Italian towns. In Tuscan private credit markets, Jewish lending helped households to smooth consumption, buy working capital, and provide dowries for daughters. Jewish lenders also helped the public finances of the communes in which they resided. This article shows that publicfinance considerations affected the choice of the interest-rate ceiling Jews were allowed to charge. In many instances, the communes raised the interest-rate ceiling for Jewish lenders in order to tax or borrow the proceeds. T he state is one among the institutions that can deeply affect the market economy. As Avner Greif, Paul Milgrom, and Barry Weingast remark, "One of the central questions about the institutional foundations of the market concerns the power of the state."' Taxation and regulation of the market economy are powerful tools through which the state can exercise its power. Since antiquity,governments have imposed price caps, interest-rateceilings, quotas on imports and exports, wage controls, and regulations forjob safety and product quality.2The fiscal interest of the state has sometimes affected lThe Journal of Economic History, Vol. 60, No. 1 (March 2000). C) The Economic History Association. All rights reserved. ISSN 0022-0507. Maristella Botticini is Assistant Professor, Department of Economics, Boston University, 270 Bay State Road, Boston, MA 02215. E-mail: [email protected] I wish to thank Gary Libecap (the editor), Heath Pearson (the assistant editor), and two anonymous referees for comments that greatly improved this article. I am indebted to Joel Mokyr, Edward Muir, and Bill Rogerson for their guidance and helpful insights; to Francesco Bonomi for his simple yet powerful search program on the 1427 Florentine Catasto. I also benefited from the comments of Lee Alston, Loren Brandt, Saul Engelbourg, Giovanni Federico, Avner Greif, Farley Grubb, Timothy Guinnane, Stephen Haber, Paul Hohenberg, John Munro, Michele Luzzati, Jean-Laurent Rosenthal, Rodolfo Savelli, Ariel Toaff, Chris Udry, and seminar participants at Harvard University, University of Illinois at Urbana, NorthwesternUniversity, University of Toronto, the Washington Area Economic History Seminar, the Observatoire Francais des Conjonctures Jtconomiques (Paris), the American Historical Association meeting in Seattle (January 1998), and the Economic History Association meeting in New Brunswick, NJ (September 1997). Nancy Bernhaut provided excellent help in copyediting this article. Financial support from an Arthur H. Cole Grant-In-Aid from the Economic History Association and from Ente Einaudi (Rome) is gratefully acknowledged. This article is a much-revised and enlarged version of chapter 2 of the Ph.D. dissertation I wrote for the Department of Economics at Northwestern University. 'Greif, Milgrom, and Weingast, "Coordination," p. 745. 2Diederiks, Hohenberg, and Wagenaar,Economic Policy; Epstein, WageLabor; Goldin and Libecap, Regulated Economy. 164 Jewish Lenders 165 regulatorypolicy:in the MiddleAges, for example,Englishkings regulated Jewishlendingto increasetheirtaxrevenues;3in thenineteenthcentury,U.S. fiscal policy affected entryregulationin the bankingindustry.4In several historicalcontexts,the ruler'sor state's abilityto appropriateor confiscate throughtaxationand borrowinghas been an importantfactoraffectingresourceallocationand economicdevelopment.5 A criticalissue is determiningwhetherthese "intrusions"of the stateinto the marketlead to an inefficientallocationof resourcesthat in turnmay An interestinglaboratoryinwhichto testthe hindereconomicdevelopment.6 effects of taxation and governmentregulationon resource allocation is offeredby the Italiancity-statesin the MiddleAges andthe Renaissance.In this period, Italiantowns were successful commercialcenters, which experimentedwith differentsystemsof taxationand governmentborrowing. For example, the institutionof the funded public debt was invented in medievalVenice, Genoa,andFlorence.7This articlestudiesthe regulation andtaxationof Jewishlendingin manyItaliantownsfrom 1284to 1500 and measures the impactofthis interventionon privatecreditmarketsandpublic finances. Economic historianshave long appreciatedthe importanceof capital markets.In additionto LanceDavis's famousstudyon the implicationsof capital-market integration,numerousworkshaveinvestigatedthelong-term economic impactof financialinstitutionssuch as banks,free banking,deposit insurance,universalbanking,stock exchanges,insider lending, and ruralcapitalmarkets.8Othershave studiedthe interactionsbetweenprivate creditmarketsandpublicfinance.9Morerecently,economichistorianshave paidmoreattentionto smallerfinancialinstitutionsandless formalmechanisms for the allocationof capital.1 Throughall this researchwe can appreciatethemicroeconomicunderpinnings of capitalmarkets,includingtherole played by asymmetricinformationandcontractualforms. 3 Barzel, "Confiscation." 4 Wallis, Sylla, and Legler, "Interaction." 5North and Weingast, "Constitutions";Hoffinan, Postel-Vinay, and Rosenthal, "Political Economy." 6North and Thomas, Rise; Hughes, GovernmentalHabit Redux; andNye, "T71inking about the State. " 7Molho, Florentine Public Finances, "Trecitta-stato," and "The State and Public Finance"; Mueller, Banks; and Luzzatto, Debitopubblico. 8 Davis, International Capital Markets; Buchinsky and Polak, "Emergence"; Calomiris, Do "Vulnerable "Economies? and "Costs"; Haber, "Regulatory Regimes"; Lamoreaux, InsiderLending, Neal, Rise; Rosenthal, "Credit Markets" and "Rural Credit Markets"; Rothenberg, "Emergence"; and Sylla, American Capital Market. 9 Hoffinan, Postel-Vinay, and Rosenthal, "Redistribution";Wallis, Sylla, and Legler, "Interaction"; North and Weingast, "Constitutions"; Potter and Rosenthal, "Evolution"; Sylla, American Capital Market; and Velde and Weir, "Financial Market." 10Baliga and Polak, "Banks"; Banerjee, Besley, and Guinnane, "Neighbor's Keeper"; Guinnane, "Cooperatives," "Failed Institutional Transplant,"and "Diversification"; and Hoffman, Postel-Vinay, and Rosenthal, "Private Credit Markets" and "What Do Notaries?" 166 Botticini Thisarticlecontributesto thislatestliteratureby focusingon anearlierperiod andon suchvibranteconomiesas thoseof the Italiantowns. Specifically, it shows the effect of Jewishlendingon the publicfinanceof severalItalian towns from the fourteenthto the sixteenthcenturiesand its impacton the privatecreditmarketsof Tuscantowns in the earlyfifteenthcentury.In the privatecreditmarketsof earlyRenaissanceTuscany,wherecreditcooperatives were still to be inventedandwherenotariesdidnot act as crucialfmancial intermediaries as in modemFrance,Jewishlendingenabledhouseholds to smoothconsumption,purchaseworkingcapital,andprovidetheirdaughters with dowries.As a resultof livingin differenttowns andhavingenteredinto Jewishlenderssharedriskwith each otherandtherebyhelped partnerships, ease theseeconomiesout of financialautarky.In contrastto argumentsmade in previousstudies,thisarticlereassessesthepartplayedby Jewishlendingin In particular,it showsthatJews did not merelyproprivatecreditmarkets.11 vide small consumptionloans to poor households,but also large loans to wealthymerchants,artisans,prominentnotaries,andmedicaldoctors. Jewish lending also benefitedthe public finances of the communes in which they lived. Italiantown governments,often in need of money to finance ordinaryas well as extraordinary expenses-such as grainsubsidies in times of dearthor war against a neighboringtown-turned to Jewish lendersfor funds,via taxationor loans.Moreimportant,town governments regulatedJewishlendingin a way beneficialnot only to the "welfareof the poor,"as was often claimed,but also to publicfinances.We will show that besidesthewelfareof citizens,public-financeconsiderationsalso influenced themaximuminterestrateJewswerepermittedto charge.Inmanyinstances, communesset this ceilinghigh so thattheycouldappropriate partof the rent realizedby Jews on theirloans.By allowingJewishlendersto chargea high interestrateandthen taxing them,town governmentsactuallyimposed an additionaltax on theircitizens;in this case, the goods taxedwere the loans extendedby Jewishlenders. Giventhe criticalrole playedby Jewishlendersin bothprivateandpublic creditmarkets,it is valuableto studytheir lendingpolicies, the economic and demographicprofile of theirclientele,the degreeto which theirloans improvedeconomicwelfare,andthe regulationof Jewish lendingby town governments. THE CONTEXT In most countriesof centralandwesternEuropeat the end of the Middle Ages, Jews were involved in lendingmoney at interest.In the twelfth and thirteenthcenturiesJews migratedfromRome to northernItaly,settlingin '" See Herlihy,Medievaland RenaissancePistoia; andCarpi,"AccountBook." JewishLenders 167 almosteverytownalongtheway.In centralandnorthernItaly,Jewishlending reachedits apogeein the fourteenthandfifteenthcenturies.12 Duringthe MiddleAges, Christianlenderswere also very activeall over Europe.Moneylending,especiallyat interest,was an importanteconomic activityregulatedby town governments,kings, andthe CatholicChurch."3 While some of these restraints,such as the usury laws, might have been welfare-enhancing,others createddistortionsand inefficiencies, such as 14 By thefifteenthcenturythesimplisticusuryprohibimarketsegmentation. tion of an earliererawas rapidlyeroding.1 Lendingmoney at interestwas neithertotallyforbiddento Christiansnor a completelyunregulatedenterprise;usurylaws were still in force,butwere considerablyweaker. TheChurch'sbanon lendingmoneyat interestdidnot applyto Jews,who were consideredto be outside the Christiancommunity.However, most Italiantown governmentsregulatedJewishlendingin theirdomains.Jews could settleand lend money at interestthrougha condotta,a bilateralcontractbetweenthe town governmentand the Jewish lender.Condottewere long-termcharters,bindingbothpartiesfora periodbetweenfive andtwenty years,andrenewableuponexpiration.Jewishlendershadto pay an annual tax andagreeto lend (sometimesat favorableterms)to the commune.The tax was not proportionalto the numberof loansmadeor the profitsearned, but rathera lump sum paid at the beginningof each year or at specified interimdates.It rangedfroma low of 55 gold florinsin San Gimignanoin 1425, to 1,200 gold florins in Florencein 1448, to 4,000 gold ducatsin Venice in 1382. Holdersof these charters,Jews exercisedmonopolyrights in pawnbroking.16 The chartersalso regulatedthe interest-rateceiling. Thisrangedfrom60 percentper annumin Cittadi Castelloin Umbriain 1402, to 42 percentin Spoleto around1416, to 30 percentin most Tuscantowns in the fifteenth century,to 15 to 20 percentin mosttowns belongingto the Venetianterraferma duringthe sameperiod,down to 10 to 12 percentin Veniceitself in 1382. These percentagesappliedto loans to local citizens;Jews were allowed to chargewhateverinterestratethey wishedto people coming from 12 Jews agreedto settle and lend money in Florenceonly after 1437 (Tripodero, "Documenti"). Jewishbankersplayeda leadingrole in the historyof the Jewishcommunityof Venice(Jacoby,"New Evidence";Mueller,Banks;andPullan,RichandPoor),whereasGenoawas exceptionalin theabsolute absenceof Jewishpawnbroking(Heers,Genes;andEpstein,Genoa). 13Nelson, Idea of Usury;andNoonan,ScholasticAnalysis. See GlaeserandScheinkman,"NeitheraBorrower,"foraninterestingargumenton usurylawsand why they may be welfare-improving. 5Goldthwaite,"LocalBanking,"p. 31. 16Note, however,thatmonopolyrightsdidnotprecludetheexistenceof morethanone Jewishlender in a given locality.ThemonopolyrightmerelyprohibitedotherJewsfromlendingmoneywithoutthe permissionof the local incumbent,and without being regulatedand taxed by the local town government.See Simonsohn,"Lacondizionegiuridica,"for an excellentsurveyon thesechartersand on the legal statusof Jews residingin varioustowns. 168 Botticini othertowns (whose creditworthinesswas harderto assess). In some towns, the interest-rateceiling also variedwith the size of the loan. In 1421, for example,Jews in Gubbiocouldcharge50 percenton loans smallerthanone florin,45 percenton loansbetweenone andsevenflorins,and33 percenton loans largerthan seven florins."7In othertowns, the interest-rateceiling variedaccordingto the type of collateral.In 1382, for instance,Jewishlenders in Venicecouldcharge10 percenton loansagainstpawn,and 12 percent on loans guaranteedwith a writtenbond.18 As for collateral,people could borrowfromJews by pledgingmovable objects-such as clothes,shoes,jewels,andworkingtools-as pawns.Alternatively,borrowerscould provide a writtenpromise of repaymentto the Jewish lender.In some instances,the borrowerhimself wrotethis deed; in othercases, a notarydraftedthepromiseof repaymentbeforetwo witnesses. A borrowercould also namea guarantor,who ensuredrepaymentof a debt if the borrowerbecame insolvent.In some instances,Jews lent money on trust, without asking the borrowerfor any guaranteesat all. They were, however,excludedfrommortgagelending.Italiancity-stateslikely wanted to preventJews(consideredto be foreigners)fromacquiringsignificantland holdingsin theirterritoriesthroughmoneylending.Jews themselves,however,were reluctantin investingtheirwealthin land,a safe butvery illiquid asset. ShouldJewishlendersneed to leave town quickly,eithervoluntarily or underimposition,cash andjewels were moreliquiditems. THE SOURCESAND THE SAMPLE No studyexhaustivelydocumentsthe economicanddemographicprofile of those who borrowedfromJews in medievalandRenaissanceItaly.The main reasonis thatJewishlenders'accountbooks, which could have provided informationon theirclientele,have not survived.Even in those very rarecases in which they have survived,the absenceof contemporarycensuses makesit almostimpossibleto tracea completeeconomic and demographicprofile of the borrowers.19 Therefore,many claims aboutthe economic impactof Jewishlendingareoften basedmoreon speculationsthan on historicalevidence. Thisarticleprovidesa completeeconomicanddemographicprofileofthe clientsof Jewishlendersin early-fifteenth-century Tuscanyby exploitingan existing sourceof data-the Florentinecatastoof 1427-in a novel way. In 1427 the Florentinecity government,pressed by urgentfinancial needs stemmingfromcontinuouswarfarewith otherItaliancities,triedto increase 17 Toaf, Jews in Umbria. 8 Mueller, "Charitable Institutions," pp. 631-34. 19 See Carpi ("Account Book"), who has studied the account books of a Jewish lender in Montepulciano in 1409/10. Jewish Lenders 169 its tax revenues.To ascertainthe wealthof the citizensliving in all its territories,it undertooka catasto,a comprehensivecensusof personsandproperty. The head of each householdwas requiredto enumeratehis or her houses,lands,anddraftanimals;cropsgrownandtypesof agrariancontracts used; average crop yields of the previousthree years; debts and credits; sharesof commercialpartnerships; andoccupation.Furthermore, he or she had to reportthe compositionof his or her family by name, age, sex, and relationshipto himself or herself. Afterstudyingthemanuscriptsofthe catastoof 1427fortenyears,David Herlihy and ChristianeKlapisch-Zuberhave made available a machinereadabledatabasecontaininganimpressiveamountof information.20 Unfortunately,though,theirfile containsonly aggregatefigureson debts,credits, and total wealth, which gravelylimits its usefulnessfor the issues investigatedin this article.To identifythe Jewishlenders'clientele,I hadto search in the catastomanuscriptshousedatthe StateArchivesof FlorenceandPisa. By going throughroughly35,000 debts declaredby all 7,793 households living in nine Tuscantowns and many villages in the countryside,I have selectedthosehouseholdsthatclaimedto owe moneyto Jewishlenders.The samplecontainshouseholdsborrowingexclusivelyfromJewishlenders,as well as householdsborrowingfrom both Jews and fellow citizens;it does not includehouseholdsborrowingexclusively fromtheirfellow citizens.21 THE ROLE OF JEWISH LENDING IN PRIVATE CREDIT MARKETS Were Tuscan households actively involved in lending and borrowing money in the earlyfifteenthcentury?Table1 indicatesthattwo-thirdsof the householdsliving in nine Tuscantowns andmanyvillages were involvedin credittransactions-as lenders,borrowers,orboth.22Furthermore, one-third of the loansto peasanthouseholdswere advancedby fellow peasanthouseholds subjectto correlatedshocks (Table2). Loansservedvariousends.Peasantsborrowedto purchasedraftanimals, merchantsto build inventories.Young heads of householdsborrowedto smoothconsumptionandto purchaselandandworkingcapital.In addition, olderheadsof householdssoughtloansto financedowriesfor theirdaugh20Herlihy andKlapisch-Zuber, Toscans. 21 Given thatthe Florentinecatastoof 1427 is a cross-sectionalsurvey,one mightpoint out that a studyof creditrelationshipswouldrequiretheavailabilityofpanel data.Evenwithall theshortcomings of cross-sectionaldata,the catastooffersa uniqueandvaluablepictureof creditmarketsin the 1427 Florentinedominion.Moreover,it sheds light on economicgroupsthat seldom appearin historical sources.Withrareexceptions(Balestracci,La zappa;andCastellani,Registro),peasantsandartisans did not leave accountbooksor diaries.Fortunately,the catastoof 1427 does indicatethe lendingand borrowingstrategiesof thesepeople. 22 TheTuscantownsconsideredinthis studyare:Arezzo,CastiglionFiorentino,Cortona, Montepulciano,Monte San Savino,Pescia,Pisa, San Gimignano,andSan Miniato. 170 Botticini TABLE1 PARTICIPATION OF TUSCAN HOUSEHOLDS IN BORROWING AND LENDING (percentages) Lenders Borrowers Nonborrowers Total 29.3 10.1 39.4 Nonlenders 25.5 35.1 60.6 Total 54.8 45.2 100.0 Note: N= 7,793. Sources: State Archives of Florence (hereafter ASF), Catasto 207, 208, 213, 214, 215, 216, 219, 233, 234, 235, 236, 248, 249, 252, 253, 254, 257, 258, 266, 269. State Archives of Pisa (hereafter ASPi), Catasto 532, 533, 535, 552, 557, 558. A large dowry enableda woman to find a better ters or granddaughters. matchin the marriagemarketandthus starta new householdandproduce offspring.23 Whilemost householdsactivelyparticipated in credit-market transactions, the dataalso show thatTuscancreditmarketswere local and isolatedespecially for peasanthouseholds:in 99 percentof the 2,587 loans to peasant householdsin five of thenineTuscantowns,lenderandborrowerlived in the sametown.Householdswhosemainsourceof incomeandwealthwasagriculture,and who thereforewere subjectto correlatedshocks,neverthelesslent and borrowedlocally.Peasantslackedaccess to a regionalor largercredit market,as therewereneitherruralbanksnorcreditcooperatives.As a result, peasantsin Pesciadidnot lendto peoplelivingin Montepulciano, peasantsin Cortonaseldomborrowedfrompeopleliving in San Gimingnano, and so on. Institutionalbarriersandinformationcosts were responsiblefor the local characterof ruralcreditmarkets.In the fourteenthand fifteenthcenturies town governmentsdid theirbest to keep theireconomiesisolated,not only as a protectioniststrategybut also as an expressionof sheerparochialism. Statutesprohibitedforeign citizens from lending money againstpawn to local citizens. Local citizens could not alienatetheir lands to foreigners, effectively disallowingone potentialsourceof credit.Above and beyond these rules,othertransactioncosts preventedthe developmentof a regional capitalmarket.Travelcosts were an importantconcernin this period,as it took a long time for peasantsto cover even smalldistances.A more importantproblemwas information.If peoplewereknownquantitiesin theirown towns,in othertownstheircreditworthiness was largelyconjectural.Whereas merchantshad developeda good communicationsystemthroughwhich they could relayinformationaboutone another'sreputations,peasantshad no such network.24 Peasantshadto wait fourmorecenturiesbeforethe in23Botticini, "Institutions," pp. 41-42, figures2.3 and2.4. 24See, forexample,the informationnetworkamongMaghribimerchantsengagedin the Mediterra- nean tradein the eleventhcentury(Greif,"Reputation" and "ContractEnforceability"),and among merchantsat the Champagnefairs(Milgrom,North,andWeingast,"Role"). Jewish Lenders 171 TABLE2 LOANS TO PEASANT HOUSEHOLDS, BY CREDITOR TYPE (percentages) Peasant Merchant Jew Othera Total 35 30 22 13 100 artisans, notaries, clergy, messeri, charitable institutions, nobles, and monasteries. Notes: N= 2,587. This table refers to peasanthouseholds borrowing from Jews inCastiglionFiorentino, Cortona, Montepulciano, Pescia, and San Gimignano. Sources: See Table 1. aIncludes ventionof creditcooperativesovercameproblemsof asymmetricinformation in ruralcreditmarkets.25 The isolated characterof ruralcreditmarketsimplied a welfare loss to these local economies, especially in the presenceof aggregateshocks. In fifteenth-centuryTuscany,these aggregate shocks stemmed from three sources. First, weatherwas a source of both aggregateand idiosyncratic shocks. Thunderstorms hit specific landplots, but a suddenfrost could destroy all the vines in a village. Second,the Florentinetown government's increasingneeds for ready cash to finance its wars often resultedin new taxes for citizens living in all Florentineterritories.26 Third,enemy troops besieging a town would often burncropsandkill cattlein the surrounding countryside;sometimes,peasantsthemselvesdestroyedtheircropsandcattle to keep enemy armiesfrom seizing them.All these ravageswere common. Table 3 indicates the frequency of these aggregate shocks in medieval Pistoia. Similartablescan be drawnfor most Tuscan(and, in fact, Italian)towns duringthe MiddleAges andthe earlyRenaissance.In the presenceof these aggregate shocks, access to an external source of credit was crucial, but it was hinderedby the institutionalbarriersand informationproblems describedabove. This is where the economic role of Jewish lenderscame into play. Jews had two competitiveadvantagesover other potentiallenders.First, their wealthwas liquid,consistingmostlyof cashandeasy-to-sellobjectspledged as pawns.The Florentinetown governmentalso prohibitedJews fromowning houses and land above a certainvalue.27Since Jewish wealth was not primarilyinvested in land, it was not affectedby aggregateshocks in the samemanneras otherpeople's:it was relativelyimmuneto weathershocks, enemy plunder,andthe landtaxes frequentlylevied by Florence. Second, Jewish lendershad an asset that other lendersdid not, namely strongeconomicandsocialties amongthemselves.Studiesprovidesubstantial evidenceof the close familyties andeconomicconnectionslinkingJews 25 Guinnane, "Failed Transplant." 26 Motho, Florentine Public Finances. 27Cassuto, Ebrei, p. 122. Botticini 172 TABLE3 AGGREGATESHOCKSIN PISTOIA,1296-1459 Event(s) Year(s) 1296-1301 1303 1305-1306 Civil war betweenWhiteGuelfsandBlack Guelfs Uprisingin the countryside;raidby Musonedella Moscacchia Destructivesiege by FlorentineandLucchesearmies 1313 Famine 1321-1323 1328-1329 1339-1340 1346 1347 1348 1351 1354 1358 WaragainstCastruccioCastracani WaragainstFlorence;war againstCastruccioCastracani;famine Plagueandfamine(deathof one-quarterof the population) Famine;uprisingin the countryside Famine;traceof plague BlackDeath Siege by Florentinearmy;scarcity Subventionof 1,750 florinsto Florence Rebellionanduprisingin the countryside 1369-1370 Scarcity 1371 1375 1377 1386 1388 1389 1390 1393 1397-1399 1399-1400 1401-1403 1410 Banditsinfestingthe countryside Subventionof 5,500 florinsto Florence;famine Subventionof 2,000 florinsto Florence Subventionof 17,500florinsto Florence Subventionof 11,400florinsto Florence;scarcity Plague;famine Scarcity Famine;plague Subventionof 8,000 florinseachyearto Florence Plague(deathof one-halfof the population) FactionalfeudsbetweenCancellieriandPanciatichi Famine;traceof plague 1411 1416 1418 Scarcity Plague Plague 1420 Scarcity 1423 1436-1439 1457-1458 Plague Plague Plague Source: Herlihy, Medieval and Renaissance Pistoia, pp. 105, 198-23 1. Throughthisnetworkof social livingin differenttownsandregionsof Italy.28 lenderssharedriskwitheach Jewish relationshipsandeconomicpartnerships, otherandtherebyaffordedcitizensaccessto externalsourcesof credit. One might argue that merchantsliving in differenttowns could have provideda similarfinancialnetworkandthat,in times of widespreadeconomic distress,thesemerchantscouldhaveborrowedandlentamongthemselves and then to their unluckierfellow townsmen,eitherby advancing money or selling on credit. Merchants in Montepulciano, for example, 28Botticini, "New Evidence"; Cozzi, Ebrei; Luzzati, "Legami" and "Banchi"; Luzzatto, Banchieri ebrei; Molho, "Note"; Mueller, "Pratiques Economiques"; Muzzarelli, "Luoghi," Ebrei, and Banchi; Pini, "Famiglie"; Pisa, "Sulle attivitV";Segre, Jews in Piedmont; Simonsohn, Jews and History; and Toaff, "Convergenza" and "Banchieri." Jewish Lenders 173 boughtgoods on creditfrommerchantsliving in Florenceand Siena. Distance seems to have mattered,however,and merchantstypically chose to buy goods on creditandborrowfromnearbyplaces.At most, merchantsin theseperipheraltownsexchangedgoods andmoneywiththeirpeersin other Tuscantowns.Meanwhile,Jewslivingin Tuscany,Bologna,Mantua,Milan, Rome, and Venice had strongfamily and economic ties and often formed partnershipsto runpawnshops.Consequently,they could quicklytransfer substantialsums of money from one town to another.In the presenceof aggregateshocks,Jews alonecouldconnecta local town economyto external sourcesof credit.Fourcenturiesbeforethe inventionof creditcooperatives, Jewishlendingservedas a bufferagainstadverseaggregateshocks. Montidipieti couldhaveprovidedan alternativesourceof creditin these economies.Thesewere local creditinstitutions,organizedby town governments, which collecteddepositsfromwilling citizensand lent to people at advantageoustermsrangingfrom5 to 15 percentperannum.Createdunder thepressureof Franciscanpreacherswhowantedto banJewishmoneylending fromtowns,montidipietaiprovidedloanson pawn,mainlyto thepoor.However,manystudieshavepointedout thatmontidipietainevercompetedwith The fact is that Jewish lenders,who carriedon theirbusinessregardless.29 Jewishlendersandmontidipieta offeredservicesthatwere complementary ratherthansubstitutes.30 Ontheonehand,the size of the loaneachpersonwas allowedto ask for at montidi pieti was limitedto a certainsum;for larger loanspeople had to turnto Jews.3"On the otherhand,especiallyin the very earlyphasesof theirdevelopment,the montidi pietaisufferedthe recurrent problemof raisingsufficientfnrdsto satisfythe demandfor loanssincetheir depositors,livingallin thesametown,weresubjectto correlatedshocks.Thus in timesof generalhardship,the supplyof fundsfelljust as the demandrose. Jewish lenders,by contrast,providedaccess to externalsources of credit thanksto theirwidespreadeconomicandsocialnetworks. The advantagesof Jewish creditwere well recognizedby citizens and rulers of towns belonging to the Florentinedominion. When requesting Florence'spermissionto admita Jewishlenderinto theirtown, representatives always emphasized"thefinancialdistressthatthe paupersexperience The focus on the needs of because of the absence of a Jewish lender."32 pauperswas due to the banthe Churchhad instatedagainstlendingmoney at interest.To avoid the Church'spunishment,town governmentsresorted 29Fomasari,n "Thesoro";Menning,Charity;Pullan,Richand"JewishMoneylending"; andSegre, "Banchi." 30Milano,"Considerazioni," p. 216. 31 For example, in Cortonathe maximumamountthat each borrowercould borrowwas 20 lire (Cortona,Bibliotecadell AccademiaEtrusca,CodiceCortonese,Manuscript520, Capitolidel Monte Pio). 32 StateArchivesof Florence(hereafter ASF), Statuti501, fol. 158. 174 Botticini to "theneeds of the poor"in grantingthe chartersto Jewish lenders.However,as will be shownin the next section,once settledin thesetowns Jewish lendersadvancedcreditto muchlargersegmentsof the population. The studyof the catasto of 1427 shows thatin these local creditmarkets Jewishlendingwas significant.As canbe seen in Table4, a largeproportion of householdsborrowedfrom Jewishlendersin Tuscantowns: in Arezzo, almost one-fourth,in CastiglionFiorentino,one-third;in Montepulciano, one-fourth;in MonteSan Savino,almostone-fifth;in Pescia,one-fifth;and in San Gimignano,one-sixth.33 Jewish loans amountedto roughly 10 percent of the total debt of all households.To betterappreciatethe magnitudesat stake,note thatthe average value of loans in these tablesis 13.7 florins,comparedwith an annual averagesalaryof 14 florinsfor an urbanworkerin Florencein 1427. Giventhe prominenceof Jews in Tuscancreditmarkets,the studyof the economicanddemographicprofileof householdsborrowingfromJews,far from being a historicalcuriosity,can providevaluableinformationon the degreeof segmentationin these markets. THE ECONOMICAND DEMOGRAPHICPROFILEOF THE JEWISHLENDERS' CLIENTELE Both SchlomoSimonsohnandMariaMuzzarellireportthatthe socialand economicidentityof the Jewishlenders'clientelein medievalItaliantowns After studyingone of the few survivingJewishlenders' remainsobscure.34 accountbooks, writtenin Montepulcianoin 1409/10, Daniel Carpiargues thatJewishlenderslent small sums of moneyto poor people.35Meanwhile, after examiningnotarialdeeds, Ariel Toaff points out that wealthy merchantsandlandlordsalsoborrowedfromJews.36As thisarticlewill highlight in the next section, the type of collateralused was based on the financial standingof the borrowers.Given that poor people (bad risks) borrowed againstpawn,they were likelierto be listedin the Jewishaccountbooks.On the otherhand,richpeople (good risks)were moreaptto borrowfromJewish lenders by providing written promises of repayment or notarial 33In 1428 a dispute arose between the citizens of Cortona and the Jewish lender regarding the terms of the charter. This fact might explain the small size of Jewish lending in Cortona at the time of the catasto (Cortona, Archivio Storico del Comune, Manuscript F). As for Pisa, the percentage of households borrowing from Jewish lenders is suspiciously small, since at the time of the catasto, one of wealthiest and more prominent Jewish lenders lived and owned a profitable business there. One possible explanation for the small measured size of Jewish lending in Pisa may lay in the unwillingness of Pisan citizens to diligently compile their declarations (Pisa had been forcibly incorporated into the Florentine territories in 1406, and Pisan citizens always resented Florentine rule). 34Muzzarelli, "Luoghi"; and Simonsohn, "Stato attuale." 3S Carpi, "Account Book." 36Toaff, rino. Jewish Lenders 175 TABLE4 SCALE OF JEWISH LENDING IN TUSCAN TOWNS, 1427 Households Borrowing from Jews AreZZO* Castiglion Fiorentino Cortona Montepulciano Monte Sansavino Pescia Pisa* San Gimignano San Miniato Total Total, excluding Cortona and Pisa Debts to Jews Number Percentage of Total Amount (gold florins) Percentage of Total Debts 217 165 118 180 62 197 80 99 44 1,160 18.2 30.2 6.1 26.4 22.4 20.3 4.7 17.2 13.6 14.8 5,261 1,652 1,892 2,501 516 1,896 1,704 2,456 670 18,548 11.6 14.9 5.1 14.8 25.3 8.8 0.6 8.4 4.4 8.2 962 23.3 14,955 10.3 * The figures for Pisa and Arezzo include citizens living in town, not those living in the countryside. For all other towns, figures refer to citizens living in towns and in the corresponding countryside. Sources: See Table 1. deeds. Therefore,studies that focus separatelyon either Jewish account books or notarialdeeds are likely to generatea selectionbias. Based on the fact that Jews were considered foreigners and were not required to compile a declaration for the Florentine catasto of 1427, HerlihyandKlapisch-Zuberarguethatthe catasto cannotyield any information on Jewish lending.37What they fail to appreciate is that the catasto could actually offer a wealth of informationon Jewish lending if one examines every debt declaredby each household, particularlydebts to Jews. No selection bias arises from the study of the catasto: each head of household, rich or poor, peasant or merchant,is listed in this census and propertysurvey. Who borrowedfrom Jews, accordingto the catasto of 1427? The main findingis that,in all Tuscantowns,the median(mean)wealthof those who borrowedfrom Jewish lenderswas greaterthanthe median(mean)wealth of those who did not (Table5). A t-testindicatesthatthe differencebetween the meanwealthofthose borrowingfromJewsandthemeanwealthof those not borrowingfromJews is significantatthe 1 percentlevel. Whenlooking at percentiles,13.5 percentof householdsborrowingfrom Jewish lenders hadwealthvaluedatmorethan500 florins;thecorrespondingpercentagefor householdsnot borrowingfromJews is 4.7 percent.These findingscontradict the commonopinionthatJews specializedin smallconsumptionloans to poorpeople.38Whilethe "needsof the paupers"mighthave been a valid 37 Herlihy and Klapisch-Zuber, Toscans. 38 Carpi, "Account Book"; and Herlihy, Medieval and Renaissance Pistoia. Botticini 176 TABLE5 WEALTHOF HOUSEHOLDSBORROWINGAND NOT BORROWINGFROMJEWS, 1427 (gold florins) Wealthof Households BorrowingfromJews Wealthof Households Not BorrowingfromJews (N (N- 1,160) 6,633) Town Mean Median Mean Median Arezzo Castiglion Fiorentino Cortona Montepulciano Monte San Savino Pescia Pisa San Gimignano San Miniato All towns 431.9 231.2 181.8 195.7 163.9 246.4 412.7 489.3 280.6 293.9 178 152.2 114.8 152.7 81.5 189 179.5 256.4 113 132.5 201.7 112 115 112 61.5 164 356 232 178.3 200.2 76 75 40 68 45 121 75.5 58 39 55 Note: A difference-of-meanstest on all towns yields a t-statisticof 4.33, well above the 1 percent criticalvalue of 2.32. Sources:See Table1. concern of town governments when inviting Jewish lenders to settle in their towns, it turns out that wealthy citizens also benefited from their presence. This finding is even more important if one considers the use borrowers made of these loans. Data from the catasto indicate that artisans, and merchants to a largerextent, borrowedmoney to finance productive investments. Among their creditors were Jews.39While wealthy merchants, prominent notaries, and rich landlords might borrow from Jews for consumptionsmoothing purposes, it seems reasonable to assume that these loans also helped to fmance productive investments. Analysis of two other economic indicators-occupation and land ownership-casts even graver doubts on the contention that poor urbanworkers and humble peasants were the primaryclientele of Jewish lenders. As Figure 1 indicates, loans to peasant households were by far the most numerous. Given that the majority of Tuscan households derived their income and wealth from agriculture,this finding is hardly surprising. What is striking is that artisans,merchants,notaries, andmedical doctors--citizens ofthe greatest wealth and highest social standing-received loans that were few in number and yet significant in size. Furthermore, although Jewish lenders were excluded from the mortgage market,95 percent of households borrowing from Jews owned land;the correspondingpercentage for households not borrowing from Jews is 86 percent. Examining the household structureofthe Jews' clientele reveals thatloans were sought especially by households with daughters: Jewish loans 39Botticini, "Institutions," p. 41, figure 2.3. JewishLenders 177 Value of Loans (florins) Number of Loans Percentage -CXc:-c:Percentage | [, -c:58-62 -] < >>ec>e lD |C-c:-C | EI2 Agriculture 72.84  |: e i ee >> 12.64 Other 3.45 11 11 1.28 Professionals 0.69 U * | 4.90 Notaries 5.52 S l< ,< 13.70 Merchants 7.02 1.01 Clergy 0.35 7.85 Artisans 10.13 C >C ><><>J><> jC = g FIGURE 1 CLIENTELEOF JEWISHLENDERS,BY OCCUPATION Note:Thedatareferto thetownsof Castiglion Fiorentino, Cortona, Montepulciano, Pescia,andSan Gimignano. Source:ASF,Catasto207,208,213,214,215,216,219,233,234,235,236,248,249,252,253,254, 257,258,266,269. amountedto 17 percentof debtsof householdswith daughters,as compared to 12 percentof debtsof householdswith only male childrenand 8 percent of debtsof householdswithoutchildren.Thisis particularlyinterestingsince dowries played an importantrole in increasingthe likelihoodof marriage and,therefore,directlyaffectedthe fertilityrate. JEWISH LENDING POLICIES To evaluatethe economicrole of Jewsin thesemedievalandRenaissance economies,it is essentialto studytheirlendingpolicies. Did Jewishlenders vary theirinterestratesaccordingto the wealthof the borrower?Did they requiredifferenttypes of collateralfromdifferentborrowers? In principle,nothingprohibitedJewsfromchargingdistinctinterestrates to differentborrowers.The chartersestablishedmaximumannualinterest ratesbutleft Jewsthefreedomof chargingless. Inthe catasto,someborrowers specifiedthe interestratethey paidon theirdebts.Table6 indicatesthat interestrateson loans amongfellow citizensvariedbetween6 and 15 percent, whereas Jews always chargedthe maximuminterestrate allowed. 178 Botticini TABLE6 NUMBER OF HOUSEHOLD DEBTS, BY INTEREST RATE AND CREDITOR TYPE AnnualInterestRate (percentages) Debts to Citizens Debts to Jews (N = 69) 18) (N= 6 1 7 7.5 8 9 10 12 13 14 1 1 3 2 4 2 1 2 15 1 1 7a 20 25 30 2 59 aFive of theseloansweremadein Montepulciano,wherethe interest-rate ceilingon Jewishloanswas set at 20 percent. Sources:See Table1. In fact, both bad and good risks paid the same interestrate:among the 59 borrowerswho paid the maximuminterestrate on loans from Jews (30 percentin all Tuscantownsexceptin Montepulciano)werebothwealthyand poor citizens. In contrast,Jewish lenders appearto have accepteddifferenttypes of collateralbased on the affluenceof the borrower.Poorpeople mostly borrowed againstpawn,while richhouseholdsenjoyedmore favorablecollateral requirements(Table7). These householdscould borrowon a written promiseof repayment,a guarantor,or even on trust,not providingany formal guaranteeat all. A t-test shows thatthe differencebetween the mean wealthof those borrowingagainstpawnandthe meanwealthof those borrowing with othercollateralis significantat the 5 percentlevel. Why,froma borrower'sperspective,was a loanagainstpawnless preferable than a loan guaranteedwith a privatedeed or by a guarantor?Pawns TABLE 7 COLLATERAL DISCRIMINATION BY JEWISH LENDERS Borrower'sWealth (gold florins) Typeof Collateral Numberof Loans Mean Median Pawn Othertypes of guarantee 133 73 365 535 72 113 Note: A difference-of-means testyields a t-statisticof 2.03, abovethe 5-percentcriticalvalue of 1.65. Sources:See Table 1. Jewish Lenders 179 TABLE 8 NUMBER AND VALUE OF JEWISH LOANS, BY TYPE OF COLLATERAL Value of Loans (gold florins) Type of Collateral Number of Loans Mean Pawn Other types of guarantee 133 73 46 122.3 Median 20 50 Note: A difference-of-means test yields a t-statistic of 3.01, above the 5-percent critical value of 1.66. Sources: See Table 1. limitedthe size of loans since the amountlent could not exceed two-thirds of the value of the pawn.40Althoughmovableitems like clothing,swords, shoes, or hammerswere widespreadandeasily pledged,theirvalue hardly allowed borrowersto obtain large loans. Moreover,the borrowerhad to relinquishthe pawn untilthe completerepaymentof the loan. Table8 confims thatthe median(mean)size of loansagainstpawnwas smallerthanthe median(mean)size of loansguaranteedwithprivatedeedsorby guarantors. Tables 7 and 8 indicatethat Jewish lendersdiscriminatedamong their customersby askingdifferentborrowersfordifferentformsof collateral.By asking a borrowerto pledge a pawn, Jewish lendersindirectlylimitedthe size of the loan.Prohibitedfromchargingbadrisksinterestrateshigherthan the ceiling set in the charters,Jewishlendersrationedcreditto theseborrowers by askingthem to guaranteetheirdebtswith pawns. Meanwhile,good risks could obtainlargerloans since Jewishlendersprovidedloans guaranteed with less restrictivecollateral. THE ROLE OF JEWISH LENDING IN PUBLIC FINANCE The importanteconomicroleof Jewswas not limitedto theprivatesector. The publicfmancesof Italiantowns also benefitedfromJewishlending.In the fourteenthand fifteenthcenturies,taxes and forcedloans from citizens were not sufficient to finance ordinaryexpenses such as official salaries. Moneywas also requiredto financewarfareagainstneighboringtowns, and to subsidizegrainin times of widespreaddearth.Table9 indicatesthe various ways in which Jewishloans helpedthe public financesof Italiancommunes, using data from Perugia, a town in Umbria. Similar data are available for other Italian towns. In additionto providing largeloans, Jewish lenders also helped the finances of the communes in which they resided through the annual tax they paid for the privilege of settling and lending money. This tax seems to have depended both on the size of the town (and thus the prospective clientele), and on the interest-rateceiling imposed (Table 10). 40Cortona,Bibliotecadell 'AccademiaEtrusca,CodiceCortonese,Manuscript520, fol. 3v. Botticini 180 TABLE9 JEWISH LOANS TO PERUGLA, 1284-1434 Year Size of Loan (gold florins) 1284 1284 1284 1287 1293 1312 1312 600 400 510 1,000 150 600 200 1315 1377 1381 1,000 1,000 500 1384 1385 1385 1386 1389 1392 1392 1392 1416 1423 1,000 500 545 500 700 500 500 500 100 231 1428 1434 500 600 Purpose or Terms of Loan Guaranteed by five citizens Guaranteed by five citizens Guaranteed by five citizens Guaranteed by five citizens 25 percent interest, to pay a mercenary soldier army in the war against Spoleto Zero-interest, to finance the war against Gubbio For the contract service of the rights and products of the Lake On the occasion of a five-year charter granting Jews permission to reside and lend money To pay soldiers to defend the town For military expenses to subdue the villages of Montone and Fratta To celebrate a victory To pay soldiers to help Siena To buy food for citizens For military expenses and to send an envoy to Pope Boniface IX To meet fmancial difficulties To pay honors bestowed to the Pope visiting the town, and to subdue a castle To defend the town from Braccio Fortebracci Jewish share of a 12,000-florin exaction by Braccio Fortebracci, Lord of Perugia, to arm troops. For military expenses to defend the town of Citta di Castello Source: Toaff, Gli Ebrei a Perugia. A critical issue is whether the interest-rateceiling for Jewish lenders was set to maximize the welfare of citizens (as was often claimed), or whether this regulation also benefited public coffers. The historical evidence indicates that in several instances town governments raised the ceiling in orderto appropriate part of the rent earned by Jewish lenders on their loans. This argument rests on three findings. First,town governments allowed Jews to charge interest rates above the rate set by usury laws. As an example, let us consider the Tuscan towns. At the time of the catasto of 1427, shares of the Florentine public debt paid 5, 8, and 10 percent interest.4"The average interest rate on citizen-to-citizen debt was roughly 10 percent (Table 6). Meanwhile, Jewish lenders were allowed to charge 30 percent in most Tuscan towns. Second, thanks to this privilege and to their lending policies, Jewish lenders likely earned a rent on most of their loans. They lent to good risks at the same rate they charged bad risks (Table 6), but they minimized the potential losses on high-risk loans by demanding pawn (Table 7). In several instances, 41The Monte Comune paid 5 percent interest, the Monte de 'prestanzoni 8 percent, and the Monte di Pisa 10 percent (Molho, Florentine Public Finances, p. 72). 181 Jewish Lenders TABLE 10 ANNUAL TAXES PAID BY JEWISH LENDERS AND INTEREST-RATE CEILINGS Region Town Year of Charter Tuscany Castiglion Fiorentino Cortona 1414; 1419 1422 1466 1429 1437 1425 1437 1448-1459 1471 1471-1491 1408-1447 1382 1387 1513 1399 1406 1418 Montepulciano Prato San Gimignano Florence Veneto Romagna Volterra Venice Bologna Interest-Rate Ceiling (percentage) Annual Tax8 30 30 30 20 30 30 20 20 15 20 30 11 b 9b 80 150 150 60 800 55 800 1,200 0 1,200 100 4,000 17.5b 6,500 607 552.5 339 30 30 25 b 0 aFigures are in gold florins for Tuscan towns and for Bologna, and in gold ducats for Venice. b These interest rates are averages of two different rates applied to loans of different size or guaranteed with different types of collateral. For example, Jews could charge 30 percent on loans against pawns and 20 percent on loans with written guarantees or with a guarantor.In other towns, different rates were applied to loans of different sizes: 30 percent on loans below a certain amount, and 20 percent on loans above a certain amount. Sources: For Castiglion Fiorentino, Cortona, Montepulciano, and San Gimignano, data from ASF, Statuti 201, fol. 482; 280, fol. 251; 501, fol. 158; 759, fol. 201. For Florence and Prato, data from Cassuto, Ebrei, pp. 85, 120. For Volterra, data from Luzzati and Veronese, Banche, pp. 57-87. For Venice, data from Mueller, "Charitable Institutions," pp. 63-64; and Pullan, Rich and Poor, pp. 674-75. For Bologna, data from Muzzarelli, Banchi ebraici, pp. 15-40. town governmentsraisedthe interest-rate ceiling for Jewishlenderswiththe explicit purposeof enablingthem to earn a larger rent. For example, in Spoletoin 1416,the Jewishlenders,in orderto providethe towngovernment witha loanof5Ogoldflorins,wereallowedto chargea higherinterestrate(42 percentversus30 percent)for six months.42 Third,by taxingandborrowing fromJewishlenders,town governmentsappropriated partof this rent. Data on interest-rateceilings in many Italiantowns allow one to test whether these governmentscared about public revenue when regulating Jewish lending (Table 10). If a town governmentaimed to maximize its revenues,thereshouldbe a positive relationshipbetweenthe Jewishlender paying an annualtax to the town governmentand the interest-rateceiling. Similarly,thereshouldbe a positiverelationshipbetweenthe Jewishlender providingloansto the town governmentat favorabletermsandthe interestrate ceiling. Considerthe following equationdeterminingthe interest-rate ceiling to be offeredto Jewishlenders 42 Toaff, Jews in Umbria. 182 Botticini (1 + i)= a+,TAX+ yLOAN+c5E+e (1) whereTAXandLOANaredummyvariablesthattakeon a value of one if the Jewishlenderpays an annualtax andprovidesfavorableloans to the town government,respectively.43E is a vector of exogenous shifters, such as region, population,andthe numberof competingChristianbankers.If the town governmentaimedto maximizeits revenue,/ and y shouldbe positive; the Jewishlenderchargedcitizensa higherinterestrate,earneda rent, andthen transferredpartof this rentto the town governmentby payingthe annualtax or providingcheaploansto the commune. The regressionreportedin Table11 revealsthatwhen regulatingJewish moneylending,fiscal policy was a primaryconcernfor town governments: the coefficienton the annualtax dummyis positive andstatisticallysignificant, meaningthatwhen the Jewish lenderpaid an annualtax to the local town government,the interest-rateceiling was higher." Similarly,when Jewsprovidedfavorableloansto thecommunes,theinterest-rateceilingwas higher(thoughin this case the coefficienton the loan dummyis not statistically significant). Attilio Milano and Reinhold Mueller suggest that town governments ceilingon Jewishlendingto raiseadditional mighthaveusedtheinterest-rate This articlehas gone one stepfurther:it hasproposedandtested revenues.45 the hypothesisthattown governmentswere, in effect,taxingtheirown citizens whenthey establishedlocal monopoliesin Jewishlending,allowedthe Jewishincumbentto chargehigh interestrates,andthentaxedawaypartof the ensuingrent.Directtaxes on wealthand income were difficultto levy, especiallyin timesof widespreadeconomicdistress.Raisingdutiesandother commoditytaxes would have been very unpopular.On the otherhand,allowing Jewsto chargehigherratesandthentaxingthemyieldedtwo results: towngovernmentsobtainedrevenues,andcitizenswillinglypaida premium for a financialservice they valued highly.Whilethe "welfareof the poor" was the mainjustificationoffered by governmentswhen inviting Jewish lendersto settle andlend money in theirtowns, it turnsout thatthe regulation of Jewishlendingalso benefitedpublicrevenues. The regression in Table 11 presents anotherinterestingfinding. The interest-rateceiling was lower in largertowns such as Florenceor Venice, be determined 43 One might reasonably argue that TAXandLOANare also endogenous variables-to simultaneously with the interest-rate ceiling. However, TAX and LOAN can be viewed as exogenous variables, determined by the fiscal needs ofthetown government at the time the charteris signed. These fiscal needs are mainly determined by exogenous factors, such as famines, wars, and other similar events that require extraordinary sums of money (see Table 9). I Ideally, the regression should include the size of the annual tax and the size of the loan provided by the Jewish lender to the commune to measure the effect of fiscal policy on the interest rate ceiling. However, since this information was missing for some towns, the regression uses dummy variables. 4 Milano, "Considerazioni"; and Mueller, "Charitable Institutions." Jewish Lenders 183 TABLE 11 OLS REGRESSIONRESULTS:DEPENDENTVARIABLEAS LOGOF INTEREST-RATE CEILINGON JEWISHLENDERS,1382-1573 Constant XV( = 1 if observationis in fifteenthcentury) XVI( = 1 if observationis in sixteenthcentury) Tuscany(= 1 if town is in Tuscany) Veneto(= 1 if town is in Veneto) Umbria( 1 if townisinUmbria) Taxpayer( = 1 if Jew pays an annualtax) Lender( = 1 if Jew lendsto the commune) Size ( 1 if town is "large") R2 AdjustedR2 F-statistic N Coefficient StandardError 2.91 0.20 -0.11 -0.07 -0.24*** 0.46*** 0.24* 0.09 -0.19*** 0.66 0.62 11.07 71 0.17 0.13 0.21 0.06 0.07 0.16 0.14 0.05 0.05 *= Significantat the 10 percentlevel. = Significantat the 1 percentlevel. Note: Dummy variablesfor the fourteenthcentury,and for the Marcheregion, have been omitted. StandarderrorsareHuber-Whiterobuststandarderrors. Sources:Dataon annualtaxes,loans,andinterestratesaretakenfromASF, Statuti201, 280, 501, 759; Campanini,"Quodpossitfenerari'; Cassuto,Ebrei; Chiuppani,Ebrei; Ciardini,Banchieri ebrei; Ciscato,Ebrei;Jacoby,"NewEvidence";Luzzati,"Ilegami";LuzzatiandVeronese,Banche;Luzzatto, Banchieriebrei;Milano,Storiadegli ebrei;Molho, "Note";Mueller,"CharitableInstitutions,"and "Pratiques 6conomiques"; Pullan, Rich and Poor; Muzzarelli, Ebrei e citta, and Banchi ebraici; Pini, Rinaldi,"Topografia"; Simonsohn, "Famiglie";Pullan,RichandPoor, and"JewishMoneylending"; Jews in the Duchy ofMantua; Toaff, Ebrei a Perugia, Jews inA4ssisi, and Jews in Umbria; Tripodero, andZen Benetti,"Prestatori." "Documenti";Varanini,"Appunti"; where Jews likely faced more competition from Christian banks. Florence and Venice were successful in negotiating a comparatively lower interestrate ceiling for their own citizens, whereas they let the Jewish lenders charge higher interest rates in smaller towns under their dominion. CONCLUDING REMARKS This article belongs to two strands of literature.On one hand, it contributes to the recent literatureon credit markets, which pays more attention to smaller financial institutions and to less formal mechanisms for the allocation of capital. For example, Philip Hoffman, Gilles Postel-Vinay, and JeanLaurent Rosenthal have highlighted the crucial role of notaries in Parisian credit markets in the eighteenth century.46Although notaries were not bankers, they did serve the purpose of matching borrowers and lenders. The notaries knew who had money to lend and who had secure collateral. Their prominent role of financial intermediaries contributed to the creation of a larger credit market in eighteenth-century France. Timothy Guinnane, for 46 Hoffiman, Postel-Vinay, and Rosenthal, "What Do Notaries?" 184 Botticini anotherexample,has highlightedthe impactof ruralcreditcooperativeson the economic development of nineteenth-centuryrural Germany and Ireland.47By reducing the asymmetric information that characterized rural creditmarkets,ruralcreditcooperativesgainedGermanfarmersaccess to a largercreditmarket. Ruralcreditcooperativesdidnot exist in medievalandRenaissanceItaly, hasyet to be investigated. andthe role of notariesas financialintermediaries Weknow,though,thatmedievalItalianmerchantbankers,especiallyfrom Florence,Genoa,and Venice,were the financialprotagonistsof medieval andRenaissanceEurope.Jewishlenders,by contrast,have often been relegatedto the narrowrole of pawnbrokers,extendingsmall, short-termconsumptionloansto thepoor.Theirrolein theeconomicdevelopmentof medieval andRenaissanceItalyhasthusbeendeemedmarginal.Thisarticlecasts seriousdoubtson these claims.By showingthatJewishlendersalso lent to wealthy artisans,merchants,notaries,landlords,and medicaldoctors,and thattheirloanswere also usedto purchaseworkingtools anddraftanimals, andto financeintergenerational transfers,this articlesuggeststhatthe economic impactof Jewish lenderson the economic developmentof Italian cities duringthe MiddleAges andRenaissancewas far frommarginal.For example,by helpinghouseholdsto amassdowriesfortheirdaughters,Jewish loansindirectlyenhancedthe fertilityrateand,hence,thepopulationgrowth of these economies. While Jewish lendersdid provide small, short-term consumptionloansto poor households,they also extendedlong-termloans to merchants,artisans,and peasantsto finance the purchaseof tools and capitalequipment. Moreover,living in differenttownsandoftenbeingorganizedin business partnerships,Jewishlenderssharedriskwith each otherandallowedtowns to accessa largercreditmarket.Usurylawsmademoneylendinganunprofitable businessfor wealthyItalianmerchants.These merchantspreferredto invest their capitalin loans to kings and popes, and in foreign trade.Although Italianpawnbrokersexisted duringthe thirteenthand fourteenth centuries,theirnumbersdecreasedin the fifteenthand sixteenthcenturies. The increasingneed of creditwas then met by Jews. The importanceof Jewishlendingwas not limitedto privatecreditmarkets. Jewishlendersalso facilitatedthe publicfinancesof the communesin which they resided. The second strandof literatureto which this article belongs analyzes the impactof the state, and specifically of government taxationandregulation,on marketeconomies.Thehistoryof the regulation of Jewish lending in medievaland RenaissanceItaly indicatesthatpublic financehada largeeffect on theways these lenderswereregulatedandcasts doubtson the "benevolent"governments,whichclaimedto regulateJewish 47 Guinnane,"Cooperatives" and"FailedInstitutionalTransplant." Jewish Lenders 185 lenders for the "welfare of their citizens." Italian town governments often turned to Jews to finance their deficits: they taxed, and borrowed at favorable terms from, Jews. Besides citizens' welfare, public-finance concerns also affected the maximum interest rate that Jews were permitted to charge. These communes sometimes had a direct interest in setting these rates high so that Jews garnered a rent which the town governments could borrow or tax. 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